Hacking Mystery Solved: Is the Mt. Gox Drama Over?

Mt. Gox is an anxious name in cryptocurrency. Actually short for “Magic: The Gathering Online eXchange”, Mt. Gox started in 2010 as a bitcoin exchange in Tokyo, Japan. By 2014, it was handling over 70 percent of all bitcoin transactions worldwide and at one short peak, handled 90 percent of global bitcoin trading. Things went south in early 2014 as the exchange closed its website and filed for bankruptcy. At the same time, it announced that nearly 850,000 bitcoins, valued at nearly $500 million, were stolen from the site. Stolen cryptocurrencies are nearly impossible to reclaim, but it’s expected the 24,000 who had their funds stolen will likely be able to file rehabilitation claims and get their funds back plus capital gains four years later. So, how is this possible?

A group of investors were able to successfully pull the exchange out of bankruptcy and into civil rehabilitation, which is a bankruptcy law in Japan that forces a lender to change the terms of a loan to mitigate or alleviate a company’s bad debt. Mt. Gox creditors made the move in order to distribute the $1.3 billion in outstanding assets to those who had currency in the exchange, rather than having the funds eventually be distributed to the shareholders of the exchange. Primarily, these creditors and others do not want the outstanding assets to go to Mark Karpeles, the ex-CEO who owned 88% of the exchange. Fortunately for these creditors, Karpeles is in the same boat as he does not want to deal with the civil lawsuits and death threats that would come if a large portion of those assets went his way.

The Mt. Gox creditors believe Karpeles was negligent in operating the company. Shortly after purchasing the exchange, Karpeles became aware of a hack that resulted in the loss of over 80,000 bitcoins valued at the time at $60,000. Karpeles took no action due to the relatively small overall value of the hack. Later in 2011, a hack came again, but rather than stealing bitcoins, the hackers were able to set the price of a bitcoin to one cent and then bought 2,000 bitcoins at that price. This time, Karpeles took action and moved much of the exchange’s bitcoin to cold storage.

What Karpeles didn’t realize until two years later was that Mt. Gox’s deposit addresses were compromised. Somehow, with help from the inside, a hacker stole the private keys for the deposit addresses and was able to slowly take bitcoins from the depository for just short of two years. Karpeles likely realized what happened in mid-2013, but the company did not publicly acknowledge it until February 2014. But by that point, it really was too late.

For years, individuals across the globe had no idea where the Bitcoins went. Now, thanks to a Swedish software engineer Kim Nilsson and other security experts, it’s known that most of the bitcoins currently sit on the BTC-E cryptocurrency exchange, which is owned and operated by Russian Alexander Vinnik. He is suspected of laundering billions of dollars in bitcoin in the past decade. Despite the bankruptcy and hacking problems, there is finally a possibility creditors can now get their funds back.

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